Unscheduled purchases include any products and services that companies need infrequently or on an ad hoc basis to deal with everyday situations. These purchases are very often made as a matter of urgency, with no regard for the procurement policy in place.
In this post, you will find the answers to all of your questions about unscheduled purchases:
- How do you define unscheduled purchases?
- What characterises unscheduled purchases?
- How do you control unscheduled purchases?
On average, unscheduled purchases, also known as tail spend, spot buys or ad hoc purchases, account for 5% of all company purchases. These include all the products and services that companies need infrequently or on an ad-hoc basis in order to operate day-to-day, but are not central to their service.
Most often, these purchases are beyond the procurement department's control as users make them as a matter of urgency and without following the procurement policy. Such purchases can take the form of additional shelving to store an unexpected volume of products, last-minute chairs for a seminar, salt for gritting car parks when it snows, and so on.
Unscheduled purchases pose a real challenge for procurement departments as they are extremely difficult to identify. Similarly, optimising the management of these purchases is also problematic. In addition, over half of indirect procurement professionals list unscheduled purchases as one of the main issues facing them today. However, these purchases represent a major source of savings.
- Uncontrolled purchases
The term "unscheduled purchases" is well-founded, as they are not managed in a structured way at all. These could include purchases made from non-listed suppliers (74%), using an unapproved channel (68%) or at prices that differ to those previously negotiated (34%).
Let's think about why final users adopt such practices. Most of the time, they do not understand or consider the procurement policy, thinking that these purchases are too trivial to have a knock-on effect. They may even think that procurement departments lack influence within the company.
- High administrative costs
Unscheduled purchases alone account for 80% of administrative costs. Behind the scenes of these many sporadic orders, there are dozens of suppliers to be created and managed, hundreds of transactions to be processed and thousands of deliveries to be arranged.
When we know that the annual cost of managing a supplier is estimated to be around €1000, and that the average cost of a transaction is between €19 and €95 (depending on the level of digitalisation), we then realise that there are significant savings opportunities to be had.
Two strategies are particularly popular because they represent the greatest savings opportunities and address the reasons behind unscheduled purchases:
- Optimising the supplier portfolio
Rationalising the supplier base by identifying a listed supplier with an extremely wide range of indirect products enables companies to better cover users' needs, who up to now, have been making unscheduled purchases with non-listed suppliers. In addition, by condensing volumes, companies can negotiate discounts and reduce their administrative costs.
- Implementing a Procure-to-Pay solution
Using an e-procurement solution, particularly an electronic catalogue, gives users access to a unique platform where they can search for all the products they need, in line with the internal ordering process. In addition, this allows companies to replenish stock more quickly and benefit from direct, well-managed deliveries from the supplier of very bulky items or items that only need to be ordered occasionally.
In addition, there are many advantages to dematerialising transactions such as improved visibility and spend management (including costs related to unscheduled purchases), reductions in processing times, automation of low value-added tasks and improved customer satisfaction. However, the main advantage is a reduction in transaction costs, which can be up to five times lower than before.
Although these strategies are both highly effective and easy to use, simply deploying them to stamp out unscheduled purchases is not enough. They need to be implemented internally alongside a credible relational strategy. As a result, procurement departments need support from both their executive officers and a partner supplier, who can visit and educate contacts based at all of the company's sites, bringing buyers, providers and users on board.